1.1 Introduction to the Statement of Profit or Loss

The statement of profit or loss provides a summary of the results of a business's trading activities during a given accounting year． It shows the profit or loss for the year．The calculation of such profits and losses is probably the most important objective of the accounting function． The owners will want to know how the actual profits compare with the profits they had hoped to make． Knowing what profits are being made helps businesses to do many things， including：

·Planning ahead．

·Obtaining loans from banks， from other businesses， or from private individuals．

·Telling prospective business partners or someone who may be interested in buying the business how successful the business is．

·Used to determine the amount of taxation on the profit．

The basic format of the statement of profit or loss is shown in Exhibit 1.1.You will learn how to prepare it in the following section．